Apollo Global, a joint venture between Nasdaq-listed Apollo Group and private equity giant Carlyle, is among the early-bird foreign universities exploring acquisitions in India's higher education sector even as the Union Government pushes ahead with a new regulation that will allow them (foreign universities) to own up to 51% stake in domestic institutions.

Laureate International Universities and DeVry Inc are the other for-profit global university

networks pursuing the India story, said sources tracking the country's red hot education industry.

The Foreign Educational Institution (Regulation of Entry and Operation) Bill, 2010, which the Union Cabinet approved two months back, has the potential to bring in foreign direct investment worth $3-4 billion into higher education over the next five years going by conservative estimates.

Human resource development minister Kapil Sibal had said, "a revolution larger than the one in the telecom sector awaits the education sector" after the Cabinet appproved the bill. It is still awaiting Parliament's nod and some industry trackers believe the passage might come with conditions, as sections of Indian polity has opposed it for years.

India could be the biggest story for international universities scripting aggressive M&A moves to expand into emerging markets. Several domestic deemed private universities are looking at funds as well as strategic inputs to scale up operations in the world's second most populous country and one of the fastest growing economies. With over 700 million youth, India probably has the largest population of young people globally.

"Acquiring a private deemed university in India would provide immediate scale and visibility to foreign players apart from giving them a first mover advantage. They can use the acquired platform to widen their network across other states in the country,”  Sunil Jain, Vice President, Mape Group, a Mumbai-based investment advisory firm, said. 

Till date, there was no legal framework for foreign universities to operate in the country (read: no regulation permitted them to grant degrees in India) even though 100% FDI has been allowed since 2000. This prompted the foreign education groups to remain on the fringes rolling out vocational and professional development courses through twinning programmes and other collaborations.

The annual government spend on education is approximately $30 billion with an annual private spend of $43 billion, said a recent note from Kaizen Management Advisors, which is an education-focussed private equity. Approximately 150,000 students travel to foreign countries every year and spend about $13 billion on education, according to Kaizen.

"Foreign universities have been looking at acquisition opportunities as the alternative option is setting up a greenfield campus in which case one may have to bleed for 3-4 years," Jacob Kurian, Partner, New Silk Route Advisors, a $1.4-billion, India-focused private equity fund, said.

However, the structuring of any such deal may not be easy as most Indian deemed universities (and their assets) are owned by not-for-profit trusts. This could mean that foreign players may be buying into hived-off management  operations of the Indian deemed universities while all the hard assets stay with the trust.

The valuations in the education sector have already reached new highs with an increasing interest from private equity players. This calendar year has already seen nine deals worth $139 million in less than six months, 58% higher than the total investments of $88 million across five deals witnessed in the whole calendar 2009, according to VCCEdge, the financial research platform of VCCircle. 

But this interest from overseas universities might not have that much of an impact on core

education assets like schools and colleges. “University and schools are not very private equity investible opportunity. Most private equity players who are education focused are not looking at that as their key area of investment,” said Sandeep Aneja, MD of Kaizen Management Advisors.

While the Ivy-league universities are not in the deal play, it is the more aggressive networks such as Apollo Global, DeVry, Laureate, and possibly Imperial College and Dukes, that are on acquisition trail.

These education groups have remained bullish on buyouts in their push to new markets. For instance, Apollo Global has a $1-billion mandate to chase new international opportunities and has effected acquisitions in markets spanning from Chile to UK, while Laureate has also spent on expanding its network in south and central Americas as well as Asia Pacific, where it has reasonable presenvce in China.

Emails sent to Laureate and Apollo Global universities did not elicit a response at the time of publication of this report.

"Rationale for M&A in education has largely been geography expansion and program expansion. Many global education players like DeVry (Fanor, USEC, Ross University, Advance Academics) Kaplan (Prosource, Study Group, Tribeca) and Apollo (BPP Holdings and UNIACC) have grown through acquisitions. In our view, countries like China & India which have large a student base will be target markets for large international education companies," Mape's Jain explained. 

Some critics of the cabinet approved bill argued that frontline foreign universities may not be willing to dilute their brand with 'deemed' status in India, which also places restrictions on their governance.

"The intent of the bill is laudable as it seeks to deregulate the education system. But are we going to attract the Ivy-league names? If not, how are we enabling the system with better than what we have today," asks Sanjay Jain, Director, Taj Capital, a New Delhi-based investment boutique. He added: "We will have to await the final bill regarding repatriating profits as well as on the tricky questions of governance."

New Silk Route's Kurian said, "The government has not come out clearly regarding for-profit operations in higher education. More importantly, the bill is still waiting before Parliament. I think the foreign players will dive in only after seeing the final bill and the guidelines, as even a seemingly small clause can have major ramifications."

Jain at Mape believes, based on his interactions with industry stakeholders, that UGC (or any other equivalent body) may decide on exempting foreign universities from fee control, reservation policies and other governing regulations once they are registered as deemed universities. "One is not clear on how this (M&As) will really work in the regulated space like universities and colleges and that will take some time to evolve," Kaizen's Aneja added. He thinks that while larger private universities would like to stay put, the smaller independent for-profit entities would be interested in selling out.

Then there could be specific baskets of the domestic education sector that foreign players are likely to covet, with vocational training and K-12 being the prominent ones. "There are lots of opportunities where these foreign education players would like to acquire niche players," Aneja said.

UK's Nord Anglia Education, which operates a network of international schools in countries including China and South Korea, is believed to be chasing acquisitions in the K-12 segment. The field of vocational training has already seen some action with UK's City & Guilds forging a joint venture with Manipal Education for work related assessments and training. Similarly, Singapore's Raffles Education Corp entered into an equal JV with Educomp for tapping niche opportunities in professional education courses. Last year, Pearson Group, a worldwide provider of education content, picked up stake in Bangalore-based TutorVista apart from floating a JV with Educomp.

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